Biotech stocks, like the rest of the broader market, have been under heavy pressure in late 2018. The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), which includes several of the largest biotechnology stocks, and the SPDR S&P Biotech ETF (NYSEARCA:XBI), which also includes the sectors sector’s mid- and small-cap companies, have been in a free-fall since October, declining over 15% each.
Although many of these biotech stocks, including AbbVie (NYSE:ABBV), Celgene (NASDAQ:CELG) and Mylan (NASDAQ:MYL), are much cheaper than they were at the start of September, investors should not expect the choppiness in individual share prices to be over yet.
Furthermore, the daily volatility of all three of these stocks is high, giving each a broad trading range. As such, investors should expect to see wide daily price swings in these names during the final weeks of 2018.
Most biotech stocks have been darlings of Wall Street until recently, but as we approach the end of the year, many analysts and investors are doubtful as to what is next for these stocks. Going into 2019, I believe investors will have to be more selective regarding which biotech stocks they choose to invest in, as some are likely to do better than others.
With that said, here’s why you should consider these three biotechnology stocks to buy for success in 2019.
Of the three biotech stocks in this article, I am most bullish on ABBV stock.
AbbVie’s earnings release on Nov. 2 showed robust top-line growth, a strong pipeline of existing and new drugs and increased guidance for its full year 2018 earnings. Humira, the world’s bestselling drug, which has U.S. patent protection through 2023, benefited from rising global sales of almost 10%. Imbruvica, its other flagship product in the lymphoma/leukemia segment, exhibited double-digit growth and exceeded revenue expectations, too.
AbbVie investors welcomed an increase in the company’s quarterly cash dividend from 96 cents to $1.07 per share. Since its spin-off from Abbott Laboratories (NYSE:ABT) — another dividend king — in 2013, ABV has increased dividends every year.
Despite competitive pressures from other healthcare and biotech companies, Abbvie has several potential cancer drugs in the pipeline that would keep the company ahead of the competition by providing a projected earnings growth of 15% per annum in the next few years.
During the rest of the year and in early 2019, I expect ABBV stock to trade between $80 – $95. Furthermore, AbbVie’s healthy dividend yield of 5% is likely to provide strong support for the ABBV stock price in the weeks and months ahead.
For a year, investors in CELG stock have been let down with the price performance of their shares. Year-to-date, Celgene is down over 30%. The downtrend and negative momentum surrounding the stock have become quite extreme.
In addition to the overall weakness in biotech stocks that has affected investor sentiment, Wall Street has been worried about whether Celgene will be able to continue to increase revenues when its vital blockbuster drug Revlimid, which generates over 60% of the revenues, comes off patent in the U.S. in 2027. Yet analysts want to see if the new management led by CEO Mark Alles will succeed in decreasing the over-concentration risk on Revlimid and if there will be new earnings blockbusters.
I am of the firm opinion that smart money will come back to Celgene as its management grows the company both organically and inorganically through acquisitions, partnerships as well as commercialization as a result of in-house research and development (R&D).
When it reported earnings on Oct. 25, Celgene beat estimates and raised its full-year guidance. With a broad and robust pipeline, CELG stock is at the forefront of biotechnology companies developing profitable drugs that enable the company to grow revenues and increase cash flow with both current and potential drugs.
During the first quarter of 2019, I expect the CELG stock price to form a base between $62.5 – $72.5, after which a new sustained leg up can take hold. Long-term investors may regard any dip in price an opportunity to get long Celgene stock.
Mylan, one of the most important global generic pharmaceuticals companies, has also had a difficult 2018 like the other biotech stocks on this list.
Year-to-date, MYL shares are down almost 20%. Developing a generic version of GlaxoSmithKline’s (NYSE:GSK) blockbuster drug Advair has been at the center of Mylan’s recent R&D efforts. In October, Mylan management said that the FDA approval is imminent.
Wall Street expects Generic Advair to contribute to MYL’s revenue and earnings significantly. In addition to the generic drug development, Mylan management has also been concentrating on improving the company’s margins by cost-cutting measures.
Despite the company developing a robust pipeline of generic drugs for Restasis, Revefenacin and Copaxone, MYL stock investors realize that the company operates in a challenging and complex generic environment with a slow uptake of the generic Copaxone, and issues with getting generic Advair and generic Restasis to market persisting.
In the next few months, I expect the MYL stock price to form a base between $27.5 – $37.5 after which a new sustained leg up can take hold. As such, patient investors who wait to get into MYL stock later in the year are likely to have good returns in 2019.
The Bottom Line on These Three Biotechnology Stocks
All three biotech stocks, ABBV, CELG and MYL stock, have strong fundamental growth prospects in the long-run, despite having come off significantly from their recent highs. Therefore, investors may start thinking about which shares they would like to see in their portfolio at these lower prices.
If I had to rank them, I would start the buying with ABBV stock, followed by MYL stock and finally CELG stock. November has not been a good time for entry into any of these stocks, but December may be a different story for these Biotechnology stocks as investors may decide to step in from the sidelines.
Ultimately, investors should always base their decisions on individual risk/return profiles and remember that most biotech stocks are not likely to have double-digit returns in 2019 while valuations and expectations become more rational.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.